Debt fight looms in 2014

President Obama and Congress will be plunged into another battle over the debt ceiling when they return to Washington from the holiday break.

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Due to October’s government shutdown, Congress needs to act on an increase in the $16.7 trillion borrowing limit far sooner than expected.

Rather than the summer deadline that was once predicted, the Treasury will now only be able to stave off a default until early March, at the very latest. Treasury Secretary Jack Lew says he sees no “reasonable scenario” in which he could buy more time.

That means Capitol Hill could spend the start of the New Year in the same place it spent much of the last: trading partisan fire over debts and deficits.

Obama on Friday said he hoped the bipartisan budget deal reached this month means that Congress will avoid another round of “brinksmanship” over the federal borrowing limit.

“I can’t imagine that, having seen this possible daylight breaking when it comes to cooperation in Congress, that folks are thinking about actually plunging us back into the kinds of brinkmanship and governance by crisis that has done us so much harm,” he said.

But at the same time, the president reiterated his hard-line against negotiating — a stance that has riled his opponents on Capitol Hill.

“We’re not going to negotiate,” Obama said. “It is not something that is a negotiating tool. It’s not leverage. It’s the responsibility of Congress.”

Republicans have made clear they expect a debt-ceiling bill to include fiscal reforms.

Senate Minority Leader Mitch McConnell (R-Ky.) said this week he “can’t imagine” Congress agreeing to a debt limit hike without attached provisions.

And Rep. Paul Ryan (R-Wis.), fresh off striking the budget deal with Sen. Patty Murray (D-Wash.), said Republicans would be seeking concessions on the borrowing cap.

“We don’t want nothing out of this debt limit. We’re going to decide what it is we can accomplish out of this debt-limit fight,” Ryan said on “Fox News Sunday.”

With both sides digging in, Congress will have much less time to haggle than in prior fights.

The tax-filing season is a rough stretch for government finances, with the Treasury typically sending out more money than it is bringing in due to tax refunds. Filers expecting a refund tend to file early, while those who have to cut a check wait until the April 15 deadline.

The slew of tax refunds will drastically reduce the potency of “extraordinary measures” that Treasury has employed to avoid a default.

The difficulties for Treasury were compounded by the shutdown. The IRS delayed the opening of tax filing season by 10 days, until Jan. 31, because work to update its system was delayed by the government closure.

According to the Bipartisan Policy Center (BPC), that likely means the government is going to exhaust its extraordinary measures more quickly, because more refunds will be paid out in the days after the debt limit is reimposed.

Congress agreed to suspend the borrowing cap until Feb. 7. On that day, the cap will be automatically raised to cover the borrowing that has occurred since mid-October. The more refunds the government has to pay out after the limit is back in place, the closer the nation will be to default.

Further exacerbating the situation is that one of the Treasury’s biggest extraordinary measures will be much less effective at the beginning of the year.

To buy time around the borrowing cap, the Treasury temporarily freezes its investments in a federal employee pension fund. But in February, that fund has little investment activity occurring, which means it can’t be tapped for cash.

All told, BPC experts estimate that while the Treasury could free up $303 billion in headroom during the last debt-limit debate, it will only be able to tap $198 billion this time around.

With Treasury facing a tight deadline, it remains to be seen whether Congress will return to the partisan warfare that has marked past debt-ceiling debates.

The GOP has not yet produced a specific list of demands, and outside conservative groups are signaling some flexibility.

“We're open to any and all proposals that will lead to increased economic growth and will weigh them the same way we do with every piece of legislation,” said Barney Keller, spokesman for the Club for Growth.

“Conservatives in Congress shouldn’t be taking anything off the table right now,” said Dan Holler, spokesman for Heritage Action. “The debt ceiling is an opportunity to enact substantive policy reforms that drive down federal spending and get our nation on a path to balance.”

But Republicans who looked to strike deals in last fiscal fights don’t see the debt limit being boosted without strings attached.

“Obviously we are not interested in raising the debt limit without some additional reforms, but we’ve got to plot out carefully how we do it,” said Sen. John McCain (R-Ariz.).

McCain said the unilateral “nuclear option” change to Senate rules hasn’t helped matters.

“Right now, there’s no spirit of cooperation,” he said. “Let’s hope in January there will be.”